Selling a medical practice is one of the most complex financial transactions a physician will undertake. Unlike selling a consumer business, medical practices involve credentialing, patient relationships, ongoing insurance contracts, and regulatory considerations that require careful planning.
Here are the five variables we believe most impact the outcome of a practice sale.
1. Accounts Receivable Treatment
The accounts receivable (AR) at the time of sale is often the most contentious negotiating point. There are two main approaches:
Seller Collects Outstanding AR
The seller retains rights to all outstanding claims at the time of sale and continues billing activity for a defined period post-closing (typically 90–180 days). This is simpler for the buyer but requires the seller to maintain billing operations temporarily.
Buyer Acquires AR at Discount
The buyer may agree to purchase the AR at a discounted value (often 50–70 cents on the dollar, depending on age and payer mix). This gives the seller a clean break but typically results in less total recovery.
Our recommendation: Have your billing partner provide a clean aging report at least 90 days before closing so you can negotiate from an informed position.
2. Municipal Unemployment Rate
This is a variable most sellers overlook. The local unemployment rate affects:
- The size and sustainability of your patient base
- Staff recruitment costs for the buyer
- The likelihood of commercial insurance retention post-sale
A practice in a growing metropolitan area with low unemployment commands a higher multiple than the same practice in a declining market.
3. Independent Auditors
Before listing your practice, engage an independent healthcare valuation firm. They will use methodologies such as:
- EBITDA multiples (common for larger practices)
- Revenue multiples (simpler, used for smaller practices)
- Widget analysis — calculating the value based on the number of billable encounters, average reimbursement, and payer mix
Do not rely solely on your accountant or attorney. A healthcare-specific valuation expert understands nuances that general advisors miss.
4. Restrictive Covenants
Any purchase agreement will include restrictive covenants. There are four primary types:
- 1. Non-Competition — Prevents you from practicing medicine within a defined geographic radius for a defined period
- 2. Non-Solicitation — Prevents you from actively recruiting patients to a new practice
- 3. Anti-Raiding — Prevents you from hiring your former staff members
- 4. Confidentiality — Restricts your ability to disclose practice financials, systems, or patient data
These covenants are negotiable. Geographic radius, duration, and carve-outs (e.g., you can still see existing patients who seek you out) are all points to negotiate before signing.
5. Transition Planning
The most valuable thing you can do before selling is build a practice that runs without you. That means:
- Documented systems and workflows
- Staff capable of operating independently
- Clean, up-to-date billing records
- A healthy AR with no significant outstanding denials
Buyers pay premiums for practices that are operationally clean and financially transparent.
Final Thought
A well-prepared practice sale can fund your retirement, support your staff, and ensure your patients continue receiving good care. Start planning 12–24 months before your target sale date, and engage the right advisors early.